The choice of accounting framework for a crypto asset is not a year-end judgment call. It follows from the nature of the token and the business model — and it determines the capital calculation, the audit outcome, and the tax position simultaneously.

When the IASB published its targeted amendments to IAS 38 in May 2024, it settled a debate that had been running in practice for years: crypto assets are, as a default, intangible assets under IAS 38. But the amendments also confirmed what practitioners already knew — the default does not apply universally. For a crypto business with a mixed balance sheet, the classification analysis must be run asset by asset, and the results documented in a board-approved accounting policy before the audit begins. Most of crypto businesses operate crypto assets with very different features in often complex scenario, where a legal and factual analysis of the single crypto asset is required to understand and assess the proper accounting treatment.

Cryptocurrencies as well as a range of similar assets are a subset of crypto assets and are not dealt directly in any accounting principles. Being still an emerging area, practice will no doubt evolve over time[1].

Most crypto businesses get this wrong in one of two ways. The first is applying a single framework to all tokens on the balance sheet by analogy or convenience — typically IAS 38 — without asking whether some tokens might be better characterised as financial instruments under IFRS 9 or as inventory. The second is making the classification decision informally, at the point of preparing the accounts, without reference to a documented policy. Both create the same problem: an accounting position that cannot be defended to different stakeholders, including auditors, regulators, suppliers and clients, with a possible material tax impact, if not properly verified.

Each crypto asset has its own legal, financial and operational profile. For that reason, a proper classification analysis must consider the underlying rights, transferability, redemption mechanics, intended holding pattern and the economic substance of the arrangement rather than relying on the token label alone.

The Three Frameworks

IAS 38 — Intangible Assets

IAS 38 applies to crypto assets that are identifiable non-monetary assets without physical substance. This covers the majority of tokens held by a business for long-term purposes — utility tokens, governance tokens, protocol tokens held as a strategic investment, and native tokens held on the balance sheet of an issuer for treasury management purposes.

Under IAS 38, the asset is measured at cost on initial recognition. Subsequently, the entity can apply either the cost model (cost less accumulated amortisation and impairment losses) or the revaluation model (fair value at the date of revaluation less subsequent amortisation and impairment). The revaluation model is only available if there is an active market in the asset — which, for the purposes of IAS 38, has a specific meaning: a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

PRACTICAL POINT

For most tokens outside the top tier of market capitalisation, an active market in the IAS 38 sense does not exist. This means the revaluation model is not practically available, and the cost model applies — with impairment recognised when the recoverable amount falls below carrying value. Impairment is a one-way street under IAS 38: once recognised, it cannot be reversed even if the token price recovers. From a tax point of view, depreciation is usually regarded as a allowable cost.

The 2024 amendments to IAS 38 did not change the measurement requirements. They clarified the scope — confirming that crypto assets within the scope of IFRS 9 are excluded from IAS 38, and that a crypto asset will be within the scope of IFRS 9 if, and only if, it meets the definition of a financial asset under that standard. This is the threshold question in any classification analysis.

IFRS 9 — Financial Instruments

IFRS 9 applies where the crypto asset meets the definition of a financial asset — that is, where it represents a contractual right to receive cash or another financial asset, or a contractual right to exchange financial instruments with another entity under conditions that are potentially favourable. The key word is contractual: the right must arise from a contract, not merely from the market expectation that the asset can be sold.

For most native protocol tokens, this threshold is not met. A token that provides access to a network or a right to vote on protocol governance does not, without more, represent a contractual right to cash. However, certain classes of crypto asset can and do meet the IFRS 9 threshold:

• Stablecoins with redemption rights — where the holder has a contractual right to redeem the stablecoin for fiat currency at a defined rate, the asset may be a financial asset. The analysis depends on whether the redemption obligation is contractual and enforceable, and who bears the credit risk.
• Tokenised bonds and debt instruments — where the token represents a fractional interest in an underlying debt obligation, IFRS 9 applies and the classification follows from the business model test and the SPPI test.
• Security tokens with equity-like rights — where the token represents a contractual right to dividends or a residual interest in a defined pool of assets, the instrument may be a financial liability of the issuer and a financial asset of the holder.

Where IFRS 9 applies, the measurement follows the standard classification and measurement requirements: amortised cost for assets held to collect contractual cash flows that pass the SPPI test; fair value through other comprehensive income (FVOCI) for assets held to both collect and sell; and fair value through profit or loss (FVTPL) for all others.

PRACTICAL POINT

The fact that a crypto token is held as an “investment” does not make it a financial asset. Where the token is unregulated and does not give the holder a contractual right to cash or another financial asset at issuance, it will typically fall outside IFRS 9’s financial‑asset definition.

Inventory — IAS 2

IAS 2 applies where the entity holds the crypto asset in the course of ordinary activities with the intention of sale. This is the framework for exchanges, OTC desks, and market-making operations that hold proprietary positions in tokens as a matter of ordinary business activity.

The standard measurement approach under IAS 2 is the lower of cost and net realisable value. However, IAS 2 paragraph 3 contains an important exception for commodity broker-traders — entities that buy and sell commodities for others or on their own account with a view to profiting from short-term fluctuations in price — who are permitted to measure their inventories at fair value less costs to sell.

KEY QUESTION FOR EXCHANGES

Whether an exchange’s proprietary token inventory qualifies for the commodity broker-trader exception under IAS 2.3 is a judgment that depends on the facts of the operation. Where the exchange is actively trading on its own account and profiting from bid-ask spreads, the exception is likely to be available. This judgment needs to be documented and applied consistently.

KEY QUESTION FOR UTILITY TOKENS ISSUERS

In a typical utility-token issuance, where the issuer receives consideration in advance and the token gives the holder a right to future platform access, goods or services, the issuer would generally recognise the proceeds as Dr Cash (or Crypto received) / Cr Contract liability on initial receipt. That treatment is generally aligned with an IFRS 15 style analysis where the token functions economically as a prepayment for future goods or services rather than as equity or a financial liability. No immediate impact on P/L. A proper analysis is required on a case by case.

The Interaction with Regulatory Capital

For UK-regulated crypto firms — exchanges, custodians, and CATPs operating under the FCA’s crypto asset prudential sourcebook — the accounting classification has a direct and material impact on the regulatory capital calculation.

The COREPRU framework requires firms to calculate their own funds, which are derived from their balance sheet. How a token is classified affects whether it is included in own funds or treated as a risk-weighted asset. An IFRS 9 financial asset measured at FVTPL creates volatility in own funds through profit or loss. An IAS 38 intangible asset is typically deducted from own funds under the prudential rules.

A firm that has made informal or inconsistent classification decisions across its token portfolio will, in all likelihood, have a regulatory capital calculation that is incorrect. The FCA will assess the methodology in a PASS meeting and the COREPRU return. An undocumented policy is not a defensible position at either stage.

The Accounting Policy Document

IAS 8 requires an entity to select and apply accounting policies consistently, and to make judgments in applying those policies that are reasonable, supportable, and documented. For a crypto business with a mixed token portfolio, this means producing an accounting policy document that:

• Identifies each category of token held and the framework applied to that category
• Documents the basis for the classification judgment — the nature of the token, the contractual rights it represents, and the business model under which it is held
• Specifies the measurement basis and any elections made
• Addresses the interaction with regulatory capital requirements where applicable
• Is approved by the board and reviewed at least annually, or when the firm’s token portfolio changes materially

A generic statement that ‘crypto assets are accounted for in accordance with applicable IFRS’ is not a policy — it is a placeholder that will not survive an audit inquiry.

Auditors

For crypto firms approaching their first audit, the token classification analysis is typically the first area of focus. In our experience, the questions asked in the planning phase are consistent:

• Can you provide the board-approved accounting policy for crypto assets, including the classification basis for each token type held?
• For each token classified under IAS 38, is there an active market assessment supporting the use of the revaluation model, or is the cost model being applied?
• For any token classified under IFRS 9, what is the contractual basis for that classification, and has the SPPI test been applied where required?
• Has a Level 1, 2, or 3 fair value hierarchy been determined for all tokens carried at fair value, and is there a documented methodology for illiquid or thinly traded tokens?

A firm that cannot answer these questions with a document — rather than a verbal explanation — will enter the audit with a significant gap.

The 2024 IFRS Amendments: What Changed

The IASB’s targeted amendments to IAS 38 and IAS 2, effective for annual periods beginning on or after 1 January 2026 (with earlier application permitted), made three substantive changes:

• Clarification of scope: The amendments confirm that crypto assets within the scope of IFRS 9 are excluded from IAS 38, resolving the ambiguity that led some preparers to apply IAS 38 to stablecoins and tokenised financial instruments.
• Fair value measurement under IAS 38: For entities applying the revaluation model, the amendments clarify that fair value is determined by reference to the principal market at the measurement date, consistent with IFRS 13.
• Commodity broker-trader disclosure: Entities applying the IAS 2.3 exception are now required to disclose this fact and provide additional information about inventories measured at fair value less costs to sell.

Firms that have not reviewed their accounting policies since the amendments were published should do so before their next reporting period begins.

Conclusion

Token classification under IFRS is one of the most consequential accounting decisions a crypto business makes. It determines the carrying value of the balance sheet, the regulatory capital position, the tax base, and the quality of the disclosures that institutional counterparties, FCA and all other stakeholders will assess.

The starting point is a documented, board-approved accounting policy that addresses each category of token held, with a reasoned basis for each classification judgment. Without that document, every subsequent financial decision — from capital planning to FCA submissions, from tax filing to LP reporting — is built on an undocumented base.

 

[1] For a more comprehensive analysis, it is worth mentioning, inter alia, ICAEW, January 2026, Cryptocurrencies under FRS 102, and ACCA, Technical factsheet, Accounting for cryptocurrencies.